Officials at the White House have agreed in principle to at least some of the proposals being floated by Congressional Democrats surrounding the Treasury's request for historic bail-out authority; various published reports suggested Monday afternoon that Treasury secretary Henry Paulson agreed to a proposal that would see the government receive stock warrants in return for its purchase of bad assets from an ailing financial institution.
Bush administration officials, however, have signaled to Democrats that they do not want to budge on two key elements on the counter-proposal circulated Monday by Senate Banking Committee chairman Chris Dodd (D-CT). The first is a proposal to limit executive pay; the second -- much more apropos to the mortgage industry -- is a proposal that would allow judges to "cram down" mortgage debt for borrowers in bankruptcy.
Financial Week reported that House Financial Committee chairman Barney Frank believes the White House will budge on executive compensation before allowing bankruptcy reform measures around mortgage debt, a sentiment echoed by one of HW's sources on Capitol Hill.
"Dodd and Frank want the BK measure in there, but it looks like a compromise with the GOP over executive pay will end up leaving the cramdown proposal on the cutting room floor," said the source, a lobbyist. "We're closer than we look on this."
While the fate of the bankruptcy measure remains uncertain, more than 30 advocacy and community development groups -- including the well-known Center for Responsible Lending -- sent a letter to key legislators on Monday pressing for the bankruptcy measure nonetheless, suggesting that "the Paulson bailout plan will be unfair and ineffective if it fails to address the foreclosure crisis."
"Ever since the mortgage foreclosure crisis erupted into the public eye last year, our organizations have advocated Chapter 13 judicial modification relief as the most effective way, at no cost to taxpayers, to keep homeowners from losing their home," the letter read in part. "We do not believe that this crisis can be resolved solely through voluntary efforts on the part of the financial services industry."
The Mortgage Bankers Association, however, suggested earlier this year that allowing modifications of mortgage debt in bankruptcy would add as much as 2 points to most borrowers' mortgages.
While the bankruptcy cramdown provisions have been a sticking point for months, Frank said on Monday that administration officials had agreed to some sort of homeowner assistance as part of the bail out; what form that assistance might take was not immediately elaborated on. HW's sources suggested that the assistance plan would center on increased, or even forced, loan modifications for loans owned or guaranteed by both Fannie Mae(FNM) and Freddie Mac(FRE).
The Journal only referred to "fresh assistance to homeowners facing foreclosure" as an agreed-upon addition to the Treasury plan, but provided no further details.
While Senator Richard Shelby (R-AL), ranking Republican on the Senate Banking Committee and seen as a critical barometer for the passage of the proposal, characterized what's been put on the table for discussion as "neither workable nor comprehensive, despite its enormous price tag," both Senate and House members expect to put something to a vote later this week.
Disclosure: The author held no relevant positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.